- Missing  expectations.  GGR's 9M13  core  earnings  of  USD203.4m  fell short on expectations, making up 60% of our FY13 forecast of USD337m and  58%  of  consensus'  USD351m  estimate.  Other  than  the  slightly weaker  realised  CPO  price of  USD806/tonne  (vs  USD811 in  2Q)  and  a slow seasonal pickup in production (15% q-o-q vs 23% last year),  there was  also  unsold  inventory  amounting  to  442k  tonnes,  compared  with 342k tonnes at end-2Q. Had the additional 100k tonnes of palm products been  sold,  it  would  have  contributed  about  USD35m  to  the company's bottomline.

- Guiding down FY13 production. GGR is now guiding for a 5% decline in  FY13  production  (compared  to  5-10%  growth  guidance  in  previous quarter),  followed  by  a  5-10%  recovery  next  year.  We  trim  our  FY13 forecast  to  USD274m  from  USD337m  previously,  on  incorporating  a milder  4%  drop  in  production.  The  company,  which  expects  production growth to turn around next year, has guided for 5-10% growth.  

- Age  profile  improves.  After  five  straight  years  of  facing  a  declining proportion of prime age trees, GGR has gradually turned the corner, with 2013  marking  the  second  consecutive  year  in  which  its  percentage  of prime  age  trees  has  risen.  We  believe  this  trend  will  continue  and  help bring down the company's production costs next year.  

- Improvement  in  distribution  channel.  GGR  now  sells  65%  of  its volume  directly  to  destination  markets  vs  selling  via  traders,  which  was its  main  distribution  channel  previously.  Going  forward,  it  expects  the direct distribution portion to rise further to 80%. Due to an increase in its refining  capacity  to  2.0m  tonnes  since  early  this  year,  GGR's refined products sales volume surged 58% y-o-y in 9M13. Maintain BUY, with a lower FV of SGD0.60 (from SGD0.63).

Financial Exhibits

Financial Exhibits

SWOT Analysis

Golden Agri is Indonesia's largest oil palm plantation company.

Source: RHB